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Topic: Incomes Collapsing in the US (Read 346 times)

In a recent study by economists include Thomas Pinketty, The distribution of pre-tax national income adjusted for inflation in the United States has fallen steadily over the last 40 years. The bottom 50% fell from a 20% income share in 1978 to just 13% today. In France, on the other hand, incomes grew by 39%. The authors of the study believe this implies that nation-specific public policies have a profound impact on income inequality in industrial nations.

This concern over income equality needs to have a reality check. I assume that no one wants to live in a society where everyone is equally dirt poor which means income equality is not a problem in itself. It must combined with other statistics before you can say whether the numbers are a concern. Two immediate questions come to mind:

1) How does the US compare to France wrt income growth? 2) How much of the difference is due to rich French people simply leaving the country?

IOW, if *absolute* incomes for the lower 50% grew in the US but fell in France then we don't really care that the *share* of income held by the lower 50% dropped.

Similarly, French policies may discourage wealth accumulation but if that has the side effect of slowing job growth and business creation then that bad for France in the long term.

I'm sorry, but the reality check is all yours. Income inequality in OECD nations is linked to a ton of social and health issues. If you want to know how, this was the beginning of a ton of research on the topic. https://www.ted.com/talks/richard_wilkinson

Edit: If you don't give a shit about people's health and social welfare, then there's a ton of research from the OECD showing that inequality hurts economic growth. This has been corroborated by other researchers, whose articles are behind paywalls, so I haven't included them.

More importantly, who just looks at the fact that literally half the US population is making less money and shrugs their shoulders? You miss the entire point if you think it's just a simple comparison between France and the United States and even if it were, you're ignoring the desperate situation that US health and education metrics have been in decline.

More importantly, who just looks at the fact that literally half the US population is making less money and shrugs their shoulders? You miss the entire point if you think it's just a simple comparison between France and the United States and even if it were, you're ignoring the desperate situation that US health and education metrics have been in decline.

The data you linked to does not establish that incomes are dropping. It only claims that the *share* of income earned by the bottom half is dropping. There is a huge difference. For example, it the incomes of the bottom 50% have risen faster in the US than in France over the last 50 years, however, because France is so hostile towards the rich the share of the total income did not change in France. It is not clear to me that this means France is better for poor people. If anything, France's high youth unemployment rate and poor track record at integrating immigrants into the work force makes France a less attractive place to live than the US for anyone who don't have a guaranteed job in government or government protected industry.

Over the last 50 years real incomes for the bottom half have grown 25% to 30%.

More importantly - the headline and the focus of the link is on the share of total income which is totally irrelevant.What matters is real income growth.Provide data that compares real income growth in France vs US over time and you might have a point.

Real income growth doesn't matter when the entire point I've been showing you is that income inequality has adverse effects on the economy, as well as health, education, and other social welfare issues. You can bring up all the red herrings you want. What I'm telling you is an established fact based on empirical evidence that you're ignoring.

Real income growth doesn't matter when the entire point I've been showing you is that income inequality has adverse effects on the economy, as well as health, education, and other social welfare issues. You can bring up all the red herrings you want. What I'm telling you is an established fact based on empirical evidence that you're ignoring.

I could not care less about income inequality because it is irrelevant (despite the fact that it has become a bete noire for the left). The studies you reference are correlation studies which cannot establish any causal relationship because what matters is real income growth. If people are getting richer worrying about the fact that others are getting richer faster seems like jealousy. A society is not healthy if people are equally poor and getting poorer.

If you want to use statistics use statistics that have meaning. Real income growth has meaning.

If people are getting richer worrying about the fact that others are getting richer faster seems like jealousy

You can have far more money today than 40 years ago, but be far, far poorer. The absolute amount of money is totally irrelevant, it is the buying power that is important. When basics like food and housing have skyrocketed, being able to buy a flat screen TV is totally meaningless.

The absolute amount of money is totally irrelevant, it is the buying power that is important.

That is why I said *real* income. i.e. income after adjusting for inflation so your point is moot. Rising real incomes mean the buying power of poor people is increasing over time. If you have an issue with way the CPI is calculated then that is a different question. Perhaps you can find studies that use alternative ways of calculating real income that use something other than the CPI.

I could not care less about income inequality because it is irrelevant (despite the fact that it has become a bete noire for the left). The studies you reference are correlation studies which cannot establish any causal relationship because what matters is real income growth. If people are getting richer worrying about the fact that others are getting richer faster seems like jealousy. A society is not healthy if people are equally poor and getting poorer.

If you want to use statistics use statistics that have meaning. Real income growth has meaning.

So you didn't read the reports that explain how inequality hurts the economy, did you? You keep saying it doesn't matter and it's explained very clearly what it does. Not only does it matter for those in the bottom 50%, but it's going to matter for those at the top as well.

So you didn't read the reports that explain how inequality hurts the economy, did you? You keep saying it doesn't matter and it's explained very clearly what it does. Not only does it matter for those in the bottom 50%, but it's going to matter for those at the top as well.

I read those reports and, as I said, they look like correlation studies and offered no plausible causal link between income inequality and the various out comes you list. And the lack of a causal link is why I say it is irrelevant. My question is why are so resistant to the notion that rising real incomes is a good sign? What justification do you have for ignoring rising real incomes and focusing on the "inequality" stat?

A simple thought experiment should illustrate why I don't think we should care about income inequality: which society would you want to live in as a lower income person: 1) a society with rising real incomes for below median citizens and rising inequality? 2) a society with falling real incomes for below median citizens and falling inequality?

I think it should be obvious that 1) is a the better choice but that is me. The thought experiment also illustrates why inequality is an irrelevant metric.

It's okay to admit you didn't understand what you read, but that doesn't mean it's wrong.

Who says I don't understand it? For starters the studies in question say that income equality means faster GDP growth for developing countries but at some point when a society becomes "developed" it becomes negatively correlated with GDP. The fact that the sign flips is pretty good evidence that this is not a very useful indicator. The argument made to salvage the premise is that in developed countries rising inequity means under investment in human capital but that is a huge stretch. At best inequality is a symptom of under investment in human capital - not the cause. The indicator also makes no mention of what is happening with real incomes of the lower 50% which I feel are much more important.

I also watched the TED talk with his argument that relative 'lower status' results all kinds of negative outcomes but I see any correlation of "status" on outcomes as a function of culture rather than income. He mentioned that low social trust was common in societies with high inequality and I would argue that low trust is the cause - not the consequence of inequality and changing the level of trust in society requires a culture change. No tax regime is going to change this factor.

The reason I disparage the indicator because way too many people seem to think it is a justification for neo-communism where the government forces everyone to be equal. We know communism as an economic system failed so there is no reason to believe that neo-communism will fare any better. If we want to address problems in society we need to focus on those problems - not some abstract indicator that means nothing.